Malternatives FMBs Under Pressure

MALTERNATIVES:

Reading the Hard Tea Leaves

By Beth Demmon

After hitting a zenith in the early-to-mid 1990s, fl avored malt beverages (often referred to as “FMBs” or “malternatives”) never got back to that peak. Nevertheless, they’ve remained a surprisingly dogged presence in beverage alcohol, existing peacefully alongside other segments without causing too much disruption – until the hard seltzer sub-segment came along, and the category found itself as disrupted as everything else in a can or a bottle.

FMBs’ pendulum swing between expansion and refraction continues to this day, with the March 2022 NBWA Beer Purchasers’ Index (BPI) reporting a category drop from 85 in March 2021 to 42 in March 2022. For context, a rating over 50 indicates expansion, while anything below 50 indicates a contraction. Why do malternatives fl uctuate, and why are these numbers dropping now?

Liz Paquette, head of consumer insights at Drizly, has a theory. “The growth of spirit-based RTDs may have contributed to the slowing growth of the hard seltzer-slash-beer alternative category, as many of these products compete directly, despite technically falling into different categories,” she says. But here’s another thought, she says: many consumers just don’t know the difference between RTDs and hard seltzers. Drizly’s 2021 Consumer Report, she says, showed “just 32% of respondents correctly defi ned hard seltzer while the majority confused it with the defi nition of RTDs.”

Nielsen data seems to confi rm this notion of RTDs claiming former FMB purchasers. “Flavored malt beverages” only gained 2.1 % in dollar share from January 2021 to 2022 (compared to a 17% increase from the previous year), but “Cocktails ready to drink” (or “RTDs”) jumped a massive 117.1% in the same timeframe (with a 157.4% from the previous year). Comparatively, hard seltzer also saw a slowdown from 158.9% (2020-2021) to a mere 11.5% (2021-2022).

Not All FMBs are Fading

Not all FMB brands are waning, however. FMB brand director for Smirnoff, Lisa Lee, points to a 17.2% growth rate for the Smirnoff ICE Portfolio over the past six months, with a 13.1% increase for Original Smirnoff ICE in the same timeframe.

“We still see consistent YOY growth with our FMBs as we leverage new and different fl avor offerings to satisfy consumer demands,” she explains. Twisted Tea, Boston Beer’s submission into malternatives, is another longstanding success story in the FMB space. “We see Twisted Tea’s growth as a category all of its own,” says Twisted Tea brand director Erica Taylor, explaining the brand has experienced double-digit growth for 14 years and “is now the #1 FMB and the fastest growing brand in top 25 beer,” according to IRI data. In a recently published piece for Good Beer Hunting on the brand, reporter Kate Bernot revealed that Twisted Tea “outsells Boston Beer’s fl agship Samuel Adams beer family 3 to 1 in chain retail” and only Truly hard seltzer is a bigger seller in the company’s overall portfolio. In the same piece, Taylor shared panel data that shows “Twisted Tea has more than doubled its share of non-seltzer packaged FMB sales from 10% in 2017 to nearly 23% in 2021. Last year, Twisted Tea’s chain retail sales growth rate was triple that of the overall FMB category.”

An outlier? Maybe, but considering it leads the hard tea category with 93% share, according to Taylor, it’s one whose impact can’t be ignored.

How the Pandemic Affected Malternatives

Time, especially the couple of year segment of time that has involved COVID-19, has irrevocably changed the trajectory of the segment. Piotr Jurjewicz, chief marketing offi cer for FIFCO USA, says that this leveling out was inevitable, as the pandemic contributed to unsustainable growth that proliferated under unpredictable circumstances. “Growth has slowed as the hard seltzer segment becomes more mature and the marketplace stabilizes cycling the impact of COVID,” he explains, saying that while hard seltzers are still growing, their rate has slowed, which may eventually affect adjacent categories such as other FMBs and RTDs.

Even with decades of growth, Twisted Tea says they benefi ted from the consumer shift from on- to off-premise consumption during pandemic shutdowns. Smirnoff’s Lee adds that convenient formats and an increase in demand for “better-foryou” options with fewer calories, less sugar, and no gluten also spurred Smirnoff’s growth during the pandemic.

The main drivers of consumer decision making changed during the pandemic, including an emphasis on variety packs and fl avor innovation. As that disruption’s infl uence diminishes, we’re sure to see at least a decline in chaotic purchasing trends, but will there be a return to pre-pandemic normalcy? Only time will tell.

Blurring Between RTDs and FMBs Continues

As alcohol segments continue to criss-cross over each other, blurry boundaries between products won’t just continue—they may increase. FIFCO’s Jurjewicz already sees it happening.

“Seltzers are also expanding into more full fl avor options that better compete with traditional FMBs like tea, lemonade and punch,” he says, adding that the opposite is happening as well. “There are FMBs taking on some of the characteristics of seltzers like lower calories.”

He explains that FIFCO USA recently introduced Seagram’s Escapes Cocktails specifi cally to cater to consumers looking for a premium FMB experience with low alcohol, sugar, and carbohydrates. This new direction of product development will likely continue to infl uence how online alcohol platforms like Drizly showcase and categorize different brands. Paquette says that to date in 2022, “the alternative beer category—which includes hard seltzer plus other FMB subcategories like hard iced tea, hard lemonade, etc—accounts for 3.7% share of overall sales on Drizly. This is down year over year from 4% share during the same time period in 2021.”

Considering RTDs currently make up 1.8% share of sales on Drizly (up from 1.4% from 2021), brands who occupy the more traditional FMB space should consider continuing the trend of category crossover in order to remain competitive.

Future Challenges and Changes

As the pandemic’s infl uence continues to diminish its economic impact, the residual effects are still hitting everyone’s wallets. From buyers to makers, higher prices, limited availability, and supply chain disruptions have yet to settle and we’re all still feeling the pinch.

“With infl ation and costs increasing, shoppers will make hard choices at the store,” says Jurjewicz. This, of course, will affect well beyond the confi nes of the FMB category, but even considering these ups and downs, more brands are still entering the FMB space.

In February 2022, Boston Beer Company and PepsiCo Beverages partnered together to release four fl avors of Hard MTN Dew in three states with plans for 13 more by May. Despite entering what PepsiCo CEO Ramon Laguarta calls a “relatively crowded market,” the fact a partnership of this magnitude took place signals high-level optimism that there’s still opportunity in the category.

Drizly’s Paquette says in the past year, “the number of RTD products available to shop on Drizly has grown 27%, while beer alternative/FMBs’ inventory products have grown 18% year over year.” And respite new entrants into the space, top players like Twisted Tea remain confi dent in their position. “Despite new entrants in the space, Twisted Tea continues to grow,” says Taylor. We may see the category continue to decline (or simply grow more slowly), but if history is any indication, malternatives’ focus on the long-term may help them remain a dark horse contender in beverage alcohol.

FLAVORED MALT BEVERAGES

BRAND

Twisted Smirnoff Mikes Harder Mikes Hard Seagrams Escapes Redds Four Loko Cayman Jack Clubtails Bud Light Lime Rita Johny Bootlegger Steel Reserve FMB Jack Daniels Arnold Palmer MXD Corona Refresca Pabst FMB Seagrams Escapes Spiked Four Loko Pregame Malibu Splash

DOLLAR SALES CHANGE vs. YEAR EARLIER

$711,032,748 $484,028,503 $418,331,582 $306,655,568 $200,591,394 $139,190,563 $137,584,199 $123,818,563 $115,192,586 $97,872,192 $78,054,908 $65,900,801 $64,056,539 $46,236,361 $23,556,732 $21,695,589 $20,059,917 $16,500,668 $14,509,191 $14,324,800 23.8% 4.4% 1.8% -5.9% -1.3% -22.1% -2.4% 43.9% 14.1% -37.0% 10.8% -16.7% 16.1% 9.1% 0.8% -8.0% -25.7% -5.4% 206.3% 51.4%